In a move prompted by the COVID-19 crisis, the Ontario government modified the “Unfair or Deceptive Acts or Practices” regulation under the Insurance Act of Ontario in order to reduce barriers to rebating or reduction of automobile insurance premiums by automobile insurers or brokers of automobile insurance policies. 

The prohibition against rebating has typically been a consumer protection measure to prevent insurers or brokers from offering an inducement to insureds to purchase policies, with an understanding that the insureds would get some additional benefit, beyond the insurance policy itself. Apart from protecting consumers from being misled, this prohibition also provides consumer protection against discrimination. Similar prohibitions exist in other provinces and territories of Canada.

The regulatory prohibition in section 2 of O. Reg. 77/00, the Unfair or Deceptive Acts or Practices regulation is against, among other things:

1. making, or attempting to make, directly or indirectly, an agreement with an insured or applicant for insurance, as to the premium to be paid for an insurance policy that is different than the premium stated in the policy;
2. paying, allowing, or giving, directly or indirectly, or offering or agreeing to give, a rebate of all or part of the premium stated in the policy to an insured or applicant for insurance; and
3. paying, allowing, or giving, directly or indirectly, or offering or agreeing to give, consideration or other value intended to be in the nature of a rebate of premium to an insured or applicant for insurance.

However, as a result of the spread of COVID-19 and the declaration of an emergency in the province of Ontario under the Emergency Management and Civil Protection Act, automobiles are being used much less frequently, which means that, taken together, the risk assumed by automobile insurers is less than existed at the time of application or underwriting of the applicable policies. Accordingly, some automobile insurers had expressed a willingness to refund to insureds portions of annual premiums, or to reduce monthly charges of insurance premiums, based on reduced vehicle usage during the declared emergency. The regulatory prohibition on rebating had caused some uncertainty for insurers or brokers looking to provide this relief.

As a result of the change, a rebate or reduction of automobile insurance premium is not considered to be an unfair or deceptive act or practice if:

1. an emergency is declared under Ontario’s Emergency Management and Civil Protection Act;
2. the rebate is issued in response to that declared emergency; and
3. the automobile insurer files an undertaking with the Chief Executive Officer of the Financial Services Regulatory Authority (FSRA). FSRA has provided a sample form of undertaking as a starting point for insurers, which effectively commits the insurer to offering premium rebates in a manner consistent with applicable law and FSRA’s regulatory guidance.

Rebates of all or part of an automobile insurance premium are not considered an unfair or deceptive act or practice from the date of declaration of an emergency (in the case of COVID-19, March 17, 2020) to the date that is one year after the date that the declared emergency is terminated.

Ontario is the first Canadian jurisdiction to loosen restrictions on rebating during a declared emergency. We expect some other jurisdictions to similarly permit premium rebate or reduction programs. As we noted previously, the Office of the Superintendent of Financial Institutions – the leading financial and solvency regulator of insurers in Canada – has made it easier for insurers to grant deferrals for payment of insurance premiums.

In addition to this regulatory change, Ontario’s FSRA, as the market conduct and consumer protection regulator in Ontario, issued a regulatory guidance with the following highlights:

1. In order for premium rebating as described above (whether a refund, rebate, or reduction of insurance premium) not to constitute an unfair or deceptive act or practice, it must be:
   1. consumer-focused (providing financial relief where premium charged was based on risk factors that are no longer “just and reasonable” and have materially reduced during a specified period of time related to the applicable emergency);
   2. transparent and disclosed through clear and public communication by the insurer;
   3. equitable, by being consistent and not discriminatory among insureds, for example the benefit to consumers varies only based on premium paid;
   4. fair, by not being a prohibited anti-competitive practice such as tied selling, or an inducement to purchase or renew an insurance policy; and
   5. time-limited, by being undertaken during or immediately following an emergency declared under Ontario’s Emergency Management and Civil Protection Act, with a goal of providing financial relief to consumers in respect of that emergency.

Where the above criteria are satisfied, FSRA has expressed support for premium repayment programs, given the mismatch between premium levels and associated risk, and the nature of these programs as directed at relieving financial hardship among consumers, rather than permitting insurers to obtain an unfair competitive advantage or unreasonably preferring certain consumers over others.

FSRA has recommended that insurers engage with FSRA early in the design of a premium rebate program to confirm that the intended program is appropriate. In particular, FSRA has requested from insurers the following premium rebate program information prior to implementation:

1. how rebates will be calculated;
2. how rebates will be provided to customers;
3. at a high level, how customers will be impacted by the rebate program;
4. how the rebates will comply with FSRA’s principles; and
5. the intended form of undertaking to FSRA’s Chief Executive Officer that commits an insurer to developing a rebating program and implementing this program in accordance with the above-noted principles.

FSRA will sign and return to insurers undertakings as evidence for the insurer that the undertaking has been approved, with a new undertaking filed for each premium rebate program established by an insurer. FSRA has noted that insurers who fail to administer their rebating programs in accordance with FSRA guidance and their undertakings will lose the benefit of the waiver of the prohibition against rebating.

2. FSRA expects insurers to maintain records of rebates provided to their customers for use in future supervisory activity and reporting.
3. Automobile insurance is a heavily-regulated industry, with mandatory rate filings. FSRA provided an approach to principles, processes and practices that it will follow when considering applications from insurers to reduce insurance rates in order to provide rate reductions or other relief to consumers.

  Principles of the emergency rate review include:

1. rate increases will not be considered at this time; only rate reductions will be considered, including new or increased discounts, lower (or eliminated) surcharges, lower (or eliminated) fees, and lower (or eliminated) charges on instalment payments;
2. the proposed changes may not result in a premium rate increase to a customer on renewal, assuming a static book; and
3. rate reductions may be implemented on a “use and file” basis, by which they may take effect prior to being reviewed by FSRA, let alone approved, provided that FSRA will work with applicable insurers to resolve issues that FSRA identifies and, if the issues are not resolvable, then FSRA may require the insurer to cease use of the revised rate filings.

4. FSRA provided automobile insurers with a summary of some actions that insurers may take without FSRA review or approval, including:

1. re-rating policies based on changes in risk profile;
2. if appropriate and relevant, modifying or temporarily suspending the effective dates of filings to defer the implementation of rate increases;
3. being flexible in exercising contractual and statutory rights, such as those relating to:
   1. payment plans and premium payment deferral;
   2. underwriting rules and allowing exceptions for customers experiencing a period of financial difficulty, such as deferring decisions to non-renew customers who might otherwise be lawfully non-renewed; and
   3. cancelling policies or suspending coverage;
4. allocating more resources to insurer call centres and underwriting;
5. extending certain coverages where appropriate (e.g. to non-owned vehicles, or to loss of use); and
6. waiving certain standard policy exclusions (e.g. use of personal vehicles to deliver food and other products).

It is likely that FSRA will ask insurers to report on actions taken during or as a result of the COVID crisis, along with the impact on customers of these actions.

The McCarthy Tetrault LLP Insurance Law team is available to assist insurers and brokers who have questions about proposed rebating programs, including draft undertakings, or other regulatory or transactional matters.